Home shoppers have been losing purchasing power week by week because of the surge in mortgage interest rates. Eventually, that should take some of the zip out of the economy.

Last week, the national average rate on a 30-year mortgage jumped to 6.34 percent, according to Freddie Mac. That is up almost a percentage point from March 18, when the rate was 5.38 percent. Last June, the average was only 5.21 percent, the lowest since Freddie Mac began recording rates in 1971.

The increases have already had a big impact on the prices that people can pay for houses. At 5.38 percent, a monthly payment of $1,120.57 would handle a 30-year mortgage of $200,000. At the current rate of 6.34 percent, that same monthly payment would cover a mortgage of only $180,276 - almost 10 percent less.

Mortgage rates will move higher, and purchasing power will fall further, if interest rates rise as forecast. Blue Chip Economic Indicators is predicting that the yield on the Treasury's 10-year note will average 5.2 percent in the second quarter of next year. Add 1.5 percentage points to that, which is the way the Mortgage Bankers Association forecasts future mortgage rates, and that equals a mortgage rate of 6.7 percent in next year's second quarter.

That would translate into a cut in purchasing power of 13.2 percent since March of this year and 14.8 percent since June 2003.

Because of the expected climb in rates, the association predicts that sales of existing and new homes, as well as housing starts, will fall modestly by the second quarter of 2005.

For now, though, the consensus on Wall Street is that rising interest rates have not yet led to a significant slowdown in the construction of new housing. Economists expect only a 1.3 percent decline in April housing starts, which the government reports this week, to an annual rate of 1.980 million, from 2.007 million in March, according to Bloomberg's consensus forecast. That would be just a little below the 1.987 million average for the last six months.

LESS TO SPEND Rising mortgage rates have already caused a plunge in the number of mortgage refinancings, which have given Americans billions of extra dollars to spend.

In 2003, the additional cash from refinancings totaled about $200 billion. In each refinancing in which homeowners took out some cash, the extra pocket money averaged $20,000 to $30,000, according to the Mortgage Bankers Association. Since the week ended March 19, new refinancing applications have plunged 56 percent, and they are down 78 percent from their record high at the end of last May.

EXIT LEFT Another casualty of the climb in interest rates has been the high-yield bond market. So far this year, it is showing an overall loss of 1.7 percent, according to Merrill Lynch bond indexes. Since the yield on the Treasury's 10-year note began rising from its 2004 low in March, the high-yield loss has been 3.5 percent. Last year, the total return for high-yield bonds was 28.1 percent, the best ever.

Investors have taken notice. In the week ended on Wednesday, they pulled $2.2 billion out of high-yield mutual funds, according to AMG Data Services. That is the second-biggest net weekly outflow in AMG's data history, which goes back to 1992. Compared with the same periods of earlier years, this year's net outflow through Wednesday is the largest ever.

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